Romania - Politics, government, and taxation

Since the overthrow of communist leader Nicolae Ceaucescu in 1989,
Romania has been ruled by a succession of new or reformed parties, each
claiming that they will be able to revive the economy. The most dominant
has been the Party of Social Democracy in Romania (PDSR), a leftist
party that developed out of the former Romanian Communist Party. It is
headed by Ion Iliescu, a former communist who took over from Ceaucescu
in 1989 in what many see as an insiders' coup.

Iliescu recognized the need to turn Romania into a democratic market
economy and called elections in 1990 and 1992. These resulted in his
being declared president and the PDSR becoming the main party in the
governing coalition. The PDSR advocated a slow reform program and
started to
liberalize
the economy, restitute land to its pre-Communist owners, and privatize
smaller companies. But it kept state controls over some prices,
particularly in the energy sector, and over foreign exchange markets. It
also failed to break down many of the big state
monopolies
. The economy, after a recession in the early 1990s, revived on the back
of government
subsidies
. But Romania's economic problems and allegations of corruption
led to Iliescu and the PDSR losing the presidential and government
elections in 1996.

They were succeeded by a multi-party coalition that promised more rapid
reforms, including faster privatization and liberalization.
Unfortunately, this new government, headed by the Democratic Coalition,
proved too inexperienced and quarrelsome to push through many of the
necessary measures. Others proved unexpectedly painful. Price
liberalization pushed up inflation and a credit crunch boosted
unemployment, while privatization was slow and scandal-ridden. The
coalition went through 3 prime ministers in 3 years as politicians
squabbled and the economy went into a 3-year recession.

By November 2000, when new government and presidential elections were
held, the coalition government had become deeply unpopular. Romanians
voted overwhelmingly for the return of Iliescu and the PDSR. However,
the PDSR did not receive a majority of the votes. The ultra-nationalist
Greater Romania Party received the 2nd highest percentage of votes,
which generated anxiety in many national and international circles
because of the party's isolationist and xenophobic rhetoric.
Instead of forming a coalition with other parties to create a majority
government, the PDSR formed a single-party minority government. The
party claims to have changed since its previous term in office and is
now presenting itself as a European-style social democratic party. It
has announced its support for Romania's bids to join the EU and
NATO and is trying to woo foreign investors by pushing through reforms
recommended by the EU and International Monetary Fund.

In general, the elections confirmed that democracy in Romania is on a
stronger footing than the economy. The European Commission says that
substantial progress has been made in establishing political parties, a
plural-istic media, and civilian control of the army. None of these
things is yet assured, however. Parties often have similar platforms and
are continually splitting, while the media is under pressure from both
politicians and business lobbies. Meanwhile, corruption is widespread,
according to a report published in March 2001 by the World Bank. Romania
passed new anti-corruption legislation in May 2000 establishing several
agencies and tightening up rules on public administration, but it will
take years for the effects to show.

The trade unions, particularly in the mining industries, form a powerful
and potentially disruptive lobby group. In the past decade, notably in
1991 and 1998, the miners and other unions have stepped in at moments of
crisis by marching on Bucharest. Rival politicians are often accused of
triggering these miners' marches for their own ends, and
disagreements with the unions was one reason for the problems faced by
the Democratic Coalition and its partners in government. The PDSR enjoys
closer ties with the unions and is trying to use this relationship to
contain wage increases. In February 2001, it struck a key social pact
with the unions and employers, trying to set a framework for all 3 sides
to work together.

One perennial source of political and economic problems is taxation.
Weak administration and collection, the collapse of several big
tax-paying firms, and widespread tax avoidance have led to a sharp
decline in revenues. Some 30 to 40 percent of the real economy is
probably not registered in the official figures, and the government runs
a persistent deficit (7 percent of GDP in 2000) as it struggles to fund
social security systems, health care, and education. In 2000, the
government tried to boost its tax take partly by lowering tax rates and
broadening the tax base, in a bid to lure non-payers back into the
system. Despite all this, government spending still accounts for 40
percent of the economy because of slow privatization of state industry.

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